Reid v. Bank of Mobile , 70 Ala. 199 ( 1881 )

BRICKELL, C. J.

The evidence leaves no room for doubt that the bonds of the Mobile and Alabama Grand Trunk Railroad Company were held by Butt as a trustee to secure and protect "the appellants from liability on the promissory note to which they were parties, held by the First National Bank of Tuskaloosa. It was a breach of duty, and a violation of the confidence reposed in him, without the consent of the appellants, to apply these bonds for any other purpose than that of relieving them from liability on that note. Pledging them as collateral security, or making an appropriation of- them for the payment of his own debt, or the debts of a partnership of which lie was a member, was a wrongful conversion, rendering him chargeable with the value of the bonds at the time of such conversion. It is the right of the appellants to follow the bonds, or the proceeds into which they may have been changed, in the hands of all others than purchasers for a valuable consideration without notice of the trust, and into the hands of such purchasers, if the bonds are not to be taken as negotiable paper.

The bonds are payable to bearer, as are the coupons attached for the interest semi-annually, at the office or agency of the railroad company in the city of New York and in this respect differ from the bonds of the city of Troy, which were the subject of litigation in the case of Blackman v. Lehman, Durr & Co., 63 Ala. 547, which were payable in this State. It was, therefore, with a view to the law of New York, and with the intention that law should govern and control as to the character and operation of the bonds, it must be intended they were issued. By the general commercial law, which, it is presumed, prevails in New York, and which prevails here, so far as not changed by statute, bonds of this character, when expressed in negotiable words, are clothed with all the attributes of commercial paper — they pass by delivery, and in the hands of a holder acquiring them for value before due, without notice, are not •subject to equities with which they were affected as between the'original parties, or while in the hands of a party holding in trust.—2 Dan. Neg. Inst. §§ 1500 at seq. They derived much of their value from being impressed with this legal - character and their capacity of passing by mere manual delivery. Deprived of this character and capacity, they would not subserve tli.e purposes for which they are generally issued, — the convenient and speedy raising of money for the promotion and accomplishment of the objects of the corporation.

When, however, it is shown that a negotiable instrument has been misapplied — that it has been-parted with wrongfully, by one having its custody, and in fraud of the rights .of the true owner — the party claiming protection as a bona fide holder, as against the true owner, must show that he acquired it for a valuable consideration, in the usual course of trade, without knowledge of any defect or infirmity in the title of his transferror. Ross v. Drinkard, 35 Ala. 434. When that appears, he has a valid title, which can not be defeated by the fraud of the transferror, nor by equities affecting his title.

It is not necessary to inquire, whether the appellee could be regarded as a bona fide holder, entitled to protection against the equities of appellants, so long as these bonds were held as collateral security for a pre-existing debt. In this State, it has been for a long time a settled doctrine, that taking commercial paper as collateral security for a pre-existing debt, though indulgence or forbearance is granted, will not constitute a purchaser for value.—Fenoville v. Hamilton, 35 Ala. 319, and authorities cited. We are aware that this doctrine is in conflict with the great weight of authority, and upon its discussion we do not now enter. Subsequently, the bonds were taken in payment of the debt, at their full value. Receiving negotiable paper in payment of a precedent debt, can not be distinguished from purchasing it with money, or taking it in payment of property sold; and when it is so received, it is taken in the usual course of trade, and the holder is entitled to protection. Bank of Mobile v. Hall, 6 Ala. 639.

It-is only notice of the equity of the appellants, or notice of the infirmity of the title of the transferror, which will now affect the title of the appellee. It is true that Walsh, the president, and Crawford, a director of the bank, when these bonds first came to its possession as collateral security, had full knowledge that they were held in trust by Butt, and of the equities of the appellants now asserted. But it is apparent they did not acquire such knowledge while acting in their respective official capacities, or while transacting business for the bank. It was acquired in the course of business, and in transactions, with which the bank had no concern. There was no communication of if to any officer of the bank, nor was there of any fact which would have excited inquiry or suspicion. Notice to an agent, in the course of transactions for which he was employed,” operates as notice to the principal; and the rule is as applicable to corporations as to individuals.—Lucas v. Bank of Darien, 2 Stew. 321; Terrell v. Br. Bank of Mobile, 12 Ala. 502; Mundine v. Pitts, 14 Ala. 84; Pepper v. George, 51 Ala. 190. It is not the private individual knowledge of the officer of a corporation, acquired in the transaction of his own business, while dealing as if he had no official relation to the corporation, that will operate as notice.—Ang. & Ames Corp. §§ 305, 309; Terrell v. Br. Bank of Mobile, supra. It is only knowledge acquired while he is engaged within the scope of his duty and power in the business of the corporation, that can be imputed as notice to the latter.

Such being the aspect of the case, we concur with the chancellor, that the appellee is entitled to protection as a holder for value, against the equity of the appellants; and the decree must be affirmed.